Re-election of Canada Prime Minister Harper sets stage for budget

TORONTO (ICIS)--Canada's re-election of Prime Minister Stephen Harper’s conservative government sets the stage for the passage of a budget, analysts and commentators said on Tuesday.

At the same time, Harper, who won a huge majority of seats in Parliament in Monday's election, will now likely work to reduce Canada's dependence on trade with the US, they said.

The election was triggered after opposition parties did not support Harper's proposed 2011 budget.

The budget included provisions for an extension of accelerated capital cost allowances, a measure that would help attract new investments in the chemical industry, trade group Chemistry Industry Association of Canada (CIAC) has said.

Media officials at Ottawa-based CIAC did not respond to requests for additional comment on Tuesday.

In results finalised early Tuesday, Harper's government won just under 40% of the popular vote.

However, under Canada's election system, Harper's Conservative Party now has the majority in parliament, with 167 of 308 seats, up from the 143 seats they won in the 2008 election

Analysts said the outcome of the election would further strengthen the Canadian dollar, in particular after support collapsed for the Bloc Quebecois, a party that advocates ?xml:namespace>Quebec’s independence from Canada.

"[The election's outcome] is probably a net benefit for the Canadian dollar, and likely for equity markets as well," said Camilla Sutton, currency strategist at Toronto-based Scotia Capital.

A stronger Canadian dollar drives up prices for Canadian exports, including chemicals.

The Canadian currency has been trading at well over parity against the US dollar in the months, driven by high oil prices, continued weakness in the US economy and rising US government debts and deficits.

Sutton said the Canadian dollar could further rise, "with a very painful effect on exporters," if Canada's central bank, the Bank of Canada, should raise interest rates in order to combat inflation.

Jeffrey Gandz, managing director of Canada's Ivey business school in London, Ontario, said the Harper government would likely try to reduce Canada's dependence on trade with the US by working out a free-trade deal with the EU.

At the same time, Harper would support the creation of a "North American security perimeter" to facilitate trade with the US, he said.

Canada’s National Democratic Party (NDP) now succeeds the Liberal Party as the main oppostion to the majority in parliament. The NDP won 102 seats, up from 37 seats in 2008 – largely at the expense of the Liberals and the Bloc.